ETF Why endowments and foundations are leading institutional ETF adoption

ETFs are no longer a niche instrument for institutional investors. They have become a versatile part of the nonprofit toolkit – used to manage portfolio transitions, express tactical views, and, increasingly, as long-term strategic positions alongside private-market allocations.

To understand how and why institutional asset owners are using ETFs at scale, Invesco partnered with Cerulli Associates to survey the market and interview investment decision makers across channels, including executives at six endowments and foundations.^¹ The findings show that E&Fs are driving rapid growth in ETF usage across asset classes.

E&F ETF asset growth set the bar

E&Fs have adopted ETFs faster than any other institutional channel. As of year-end 2025, US foundations held approximately $56.8 billion in ETFs and endowments held $32.4 billion – $89.2 billion combined. More striking is the pace: foundations grew their ETF assets at a 32.5% five-year compound annual growth rate (CAGR) and endowments at 38.1% – the two highest growth rates of any asset owner channel, and well above the 14.4% average rate for all institutional asset owners.²

That growth reflects a broadening set of users. Larger E&Fs tend to use ETFs in an operational or tactical capacity, much like large pensions. But the segment is more fragmented than other institutional channels, and the long tail of mid- and small-sized nonprofits often uses ETFs as core positions within their strategic asset allocations. These allocators often seek low-cost passive exposure in informationally efficient asset classes – large-cap US equity, for example – frequently pairing those approaches with higher-cost alternative and private-markets strategies.³

Some of the most well-known E&Fs hold ETFs. They include the Michael & Susan Dell Foundation and Johns Hopkins University’s endowment – the largest ETF holders in the segment. The list below is based on 13F reports that these organizations file with the SEC. There are many other E&Fs using ETFs that are not captured in 13F filings.

Potential ETF benefits have driven larger allocations

Allocation sizes have climbed alongside total ETF asset growth. Foundations raised their ETF allocation from 1.0% of channel assets in 2020 to 3.0% in 2025. Endowments exhibited a similar trend where their ETF allocation went from 0.9% to 3.0% over the same timeframe. At an increase of roughly 2.0%, the growth of both channels’ ETF allocations is the most of any institutional segment.²

E&Fs cite a range of benefits when using ETFs, though their areas of emphasis differ from those of other channels.

• Foundations value ease of use, lower costs, and the absence of investment minimums most highly—attributes that resonate with the long tail of smaller institutions that can access diversified market exposure at a price that is often lower than an equivalent mutual fund.³
  
  
• Endowments prioritize the same aspects and, unlike most other institutional segments, also place a premium on tax efficiency – a growing consideration as nonprofits navigate recent changes to the tax treatment of certain investment pools.³

As heavy allocators to private markets, many nonprofits have also faced liquidity challenges. ETFs can give E&Fs a fast, flexible, and operationally efficient way to implement decisions, whether putting cash to work, bridging a manager search, or complementing illiquid private-market exposures. Some forward-thinking E&Fs have used ETFs as public proxies for private markets, adding a layer of liquidity to their portfolio.

ETFs in action: An endowment leveraging active and index ETFs

One US endowment ($1 billion–$5 billion in total assets) shows how ETFs can serve both core and tactical roles within an institutional portfolio. Using an outsourced chief investment officer (OCIO) for part of the portfolio and a lineup of five to 10 active and index ETFs across equity and fixed income, the asset owner turned to ETFs after searching for active managers to run two small-cap equity strategies. When the manager it selected offered those strategies through an ETF, the endowment determined the ETF was the best vehicle to access the exposure. Those positions are now core holdings within its strategic asset allocation.

The endowment also uses ETFs tactically. It holds the Invesco S&P 500 Equal Weight ETF (RSP) to broaden public equity exposure and reduce concentration in mega-cap US stocks. The asset owner pairs RSP with the Invesco QQQ ETF (QQQ) to seek growth opportunities those mega-caps can help drive. The trades grew out of a search for an active manager to outperform the top seven mega-cap companies; concluding that was not feasible, the team opted for the RSP-and-QQQ pairing instead.³

Three ETF ideas for E&Fs to consider

E&Fs looking for practical implementation examples may want to explore:

• Invesco S&P 500 Equal Weight ETF (RSP): It is the fourth-largest equity ETF by institutional asset owner AUM (exhibit 3, page 9).³ RSP provides equal-weight exposure to the S&P 500, which some nonprofits could potentially use to broaden participation and help mitigate concentration risk in cap-weighted indices.
• Invesco QQQ / Invesco NASDAQ 100 ETF (QQQ / QQQM): These ETFs offer exposure to the Nasdaq-100 and can be used by asset owners for both core exposure and tactical adjustments to large-cap equities.
• Invesco Senior Loan ETF (BKLN): Provides efficient access to a diversified pool of floating rate, senior secured loans. In addition to serving as a public proxy for private credit, some institutional investors have used BKLN as a temporary allocation while waiting for committed capital to be called by a private credit manager.

Discover additional ETF insights

• Get the full report, Inside Institutional ETF Adoption: How asset owners are broadening use cases, to see how asset owner ETF strategies and use cases are evolving.
• Learn more about Invesco’s ETF capabilities and connect with our institutional ETF specialist team.